this is "options action," tonight, how would you like to buy disney stock for free? it ain't no fairy tale but carter and khouw's trade and they'll show you how to make money too. talk about a face-lift. >> beautiful. >> no, not that kind of face-lift, we're talking about facebook because dan nathan says it's going higher and he's got an option trade that can make six times your money in one month. you'll like it. why are all those option traders registering their assigned calls. scott nations breaks it down. the action begins right now. from the nasdaq marketsite in the heart of times square, i'm melissa lee joined by our traders, three people with no gas.

we'll get to those trades in a moment. the dow closing on the lows of the session despite a strong jobs report, one stock that america is watching right now and that is apple. the tech giant flirting with bear market territory closing just off its lows losing just under 20 points as the ipad mini debuts with a lackluster reception. are apple's best days behind it or perhaps a buying opportunity. dan, you know this name very well. what's your sense of the price action of the stock because it's not just, of course, today. it was yesterday when technology rallied so strongly, apple was left out. it posted a bad month in october leading the nasdaq 100 to declines of 4% or so. what's going on here? >> yeah, well, to me i think there is a bit of rationality hitting the story here and i don't think it's a coincidence it made an all-time high on september 21st the day they introduced the iphone 5 down 18% to the ipad mini.

we have a situation where between the iphone 5 and ipad mini, these are two of the first defensive products i believe the company has introduced in the last ten years. when you think about it, the iphone 5 went bigger, a 4-inch screen, where some competitors were already doing that. they shrunk the ipad from ten inches for the mini to about eight so here you have very evolutionary products. i think they're both very good products but i'm not certain that they're line worthy products, meaning lines around the block to get them so here all of a sudden you have a company that's not doing category leading products. they're just keeping up with some of the competition. >> doesn't always have to be category leading. i mean take a look at what they did with the music player. came out second or third with the ipad and dominated that later. mike khouw, i'm somebody at home. missed apple all the way up to 700 and looking at it now thinking we're entering a seasonally strong period for apple. as soon as they post numbers in terms of how many ipods, ipad

mini, iphones they sold during the holiday season, that will be it. >> there can be a great deal of demand but not necessarily for their stock. the thing that will push it down when you start seeing some institutional selling, especially if you see some plain vanilla. when i say that i'm talking about mutual funds and endowments. if people think it's losing momentum, you have to watch out. this touches on what dan was talking about. if this company becomes a more generic consumer electronics company, margins will fall back into the same areas. if you see that you're talking about gross margin declines for maybe the low 40s to 26%. suddenly a stock that looks really cheap and it does if you just look at the ratios might not look as cheap when you start seeing margins come in if that's what happens. >> apple may have helped lead the market lower but other

laggards and winners. the dow falling more than 100 points in today's session but some names that had been laggard showing strong gains over the past week. priceline, starbucks, netflix, names in the doghouse getting a bit of a bid. people are willing to go into the beaten-down names. >> the additional point, a lot were looking cheap. look at the best performing sectors we've seen over the last week and month, this would be things like materials and industrial names, a lot of those were looking remarkably inexpensive if again all you looked at were the ratios. more concerned about revenue line growth that would be concerning. caterpillar at less than eight times forward earnings, the ones probably more resilient to the china story and did get good

chinese pmi data. you look at those and say, okay, you'll see people rotate into the things that aren't working because they've become so cheap. >> scott, do you buy into that strategy? >> i don't. i think business to business is still problematic. if somebody is selling to consumers, i think they're likely to do better. starbucks did well. still ten bucks from their 52-week high but the stock seems to have gotten footing and even names that have done worse, r.i.m. has found its footing and i think that consumers are actually the place to be right now. we've seen young do well. i don't like commons, i don't like a name like caterpillar because they have to do business largely overseas and that's not the place to be right now. >> so, dan, let's go to you. you're looking at facebook as one of the names that might get a second look at this point. why now? >> yeah, well, i think that's a good point you made about some of those other names. a couple others, nike had a good week after being down and out for awhile, priceline, starbucks where there was disappointment here, i think, you know, you also had kind of a technical setup where a lot of mutual

funds, fiscal year ends on november 1st so some of these stocks that had disappointments in the prior quarter and the stocks down a lot maybe you see people coming back in so didn't take a whole heck of a lot of good earnings news to get people to pile back in. facebook is interesting. it's obviously a very widely owned stock here but been this situation, overhang with the lockup expiration so had one october 31st and had one prior in august. the stock has been weak but think back to two weeks ago or less, october 23rd, these guys finally did the impossible. they gave the street some good news. they showed them how they're going to monetize mobile and some other ways they'll monetize their supposed billion users. i'm not a fan of this company. i believe ten years from now we'll talk about facebook like we talk about myspace but i think there's going to be trading opportunities coming up especially as we think about the lockup on november 14th of 777 million shares and how investors are anticipating that.

>> all right, so tonight, dan is buying a call spread on facebook. open the playbook and review the structure. here's how it works, a bullish strategy in which you buy one until the higher one gets you to reduce the call. go to the high strike where you make the most money. that said, dan, walk us through the trade. >> sure, so the stock gap 19% of earnings on october 23rd gave back about 15% of that. i think 20 is probably a floor regardless of that 777 million shares that come off lockup so here's a way to define your risk and play for a bounce right after that lockup. it could also be a good stock replacement strategy if you're long and worried about the volatility so today when the stock was about 21.15 and i did it in small size, a trade you want to pick out during the course of the week if you agree with me, if it was 21.15, i bought the 22, 24 call spread in november. those are the november 17th

expiration calls so i bought one of the november 22 calls for 45 cents and sold one of the november 24 calls against it for a dime. cost me 35 cents. that's my maximum risk so i make money between 22.35 and 24 and 24. i make up to 1.65. about four times my money. above that i make the full 1.65. between 22 and 22.35 i lose up to that 35 cents and below 22 i lose that 35 cents. remember how this stock is moving around. it's not going to take a whole heck of a lot on the upside to actually make money or break even. >> all right. all right. so, dan, in terms of the lockup, this lockup november 14th, 777 million shares, you don't think that's going to be a drag on the stock? i mean i'm raising this question because why not see how facebook shares do after this past lockup which was much smaller? it was available to employees at the same time we saw a sharp pullback in the stock on very heavy volume so why not see how

that lockup plays out before you enter this trade and bank on a bounce after a mega lockup expiration. >> i agree with that. that's a great point and like i said i did this in very small size and kind of trade this over the course of the next week and a half and try to work myself into the position a little bit because i do believe, yes, i think you could have that 3%, 4% sell-off on the day it becomes unlocked but do believe some point these sellers will stick with this thing and as stocks like apple and some of the other growth names are faltering, at some point you may see money go into this name full scale and could be a stock towards the end of the year and in the new year when you consider the fact that the stock is down 45 from its ipo price in may. >> let's bottom line this all with a little stock sources options. think investors will like it, 100 shares will cost $2100. dan's call spread offers a 6-1 payoff and sets you back around $35. not bad there. let's move on.

lost in the hurricane sandy coverage was disney's massive 4 billion deal with lucasfilm. mickey and darth vader living together in the magic kingdom. the unit could include its animation unit getting back on track. julia has more. >> melissa, disney is paying $4 billion, half cash, half stock to acquire lucasfilm from its sole owner, george lucas. the centerpiece is "star wars", they have grossed $4 billion. analysts praised the deal its long-term prospects and disney's plans for another three "star wars" filming, next coming out in 2015, the same year bob iger says it will be accretive. lucas film generates $215 million from consumer products and disney is hoping to make that number much, much bigger. now, this deal comes the same week as disney is opening "wreck-it ralph" expected to gross north of $40 million at the u.s. box office this

weekend. it's a disney animation movie but it's drawing the kind of rave reviews usually reserved for pixar films, not disney animation. following the strong performance of "tangled" last year, disney's animation under the leadership of john lassiter is firmly on track. >> a potential upbeat story at the mouse house. how do the charts look going into earnings. to carter of oppenheimer. he nailed the direction of disney in the last three earnings reports so where is it going. >> i have two charts we can zero in on. the first is a daily chart and

the thing that jumps out to the eye anyway, how orderly it is. perfect 45-degree angle and what's important when the market sold off in may and june, disney was impervious, now at the bottom of which is a well-defined channel and buy the weakness. long-term chart, disney just broken 0 out from tops that have been in effect since 1998. and usually when a breakout occurs like this it is not contained to a few points. we would play for much higher prices, 57, 58, short term. >> we want to bring your attention to a headline. the new york city marathon has been canceled. this according to our affiliate wnbc which, of course, is a local news station here in new york, so the new york city marathon has been canceled. we will have more on this story as we have it but, again, this was a very controversial call made by mayor bloomberg to hold it despite with what's going on with hurricane sandy.

this is what we know so far, the marathon has been canceled here. so interesting developments here as we continue to track this story and we'll bring you more on this. we're going to take a short break here for now but stay tuned. much more "options action" straight ahead. and you don't want to miss it with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, plus anytime you need it support. ♪ stocks, options, futures, and forex. get your trading on track. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account.

got you. >> breaking news at this hour, the new york city marathon has been canceled. this according to wnbc, our sister station. we want to go on the line to brian shactman who has more on the story. brian?

>> this really began with the woman who runs the race who made it clear in public appearances this it was not her call, the mayor's office. she said it wasn't something that she wanted to do and the angst against it was so huge and started to snowball to political leaders that have been loyal to mayor bloomberg in the past came out and spoke against it including the manhattan borough present. people literally died within certain distance of the starting line and got to the point where this could tarnish mayor bloomberg's legacy and i think it became obvious that the downside was well worth assuming to postpone or cancel it. the tide was too far against mayor bloomberg. maybe thought it could unify the city like the baseball playoffs in 2001, who knows but it clearly did not work and enough evidence to make it not happen.

>> yeah, it's just unfortunate it was made so late in the game when it was so clear power would not be restored to lower manhattan for days initially when the hurricane started and now i'm sure there are athletes who have already despite all of the flight cancellations and bookings at the hotels have made their way to the city to run this marathon only to find out now friday evening that it's canceled. >> i am not prone to hyperbole. i saw thousands -- more than a thousand runners from foreign nations, packs of them from france, italy, germany, as far away as australia, latin america, all came here to run the race and they were excited about it. i think they all recognized what was going on. they tried to credit new york for, you know, having the resilience to put this race on, but i think there's got to be an effort to compensate them somehow. i don't know how you organize that effort.

but i think every leader in new york needs to beholden to their constituency and i think ultimately that's -- yes, there were thousands of people already here and they're going to have to deal with this and they will be greatly disappointed. >> yeah, brian, on "squawk on the street" we talked to mary wittenberg and she made clear she was going along because the mayor had made this decision and they will stand by it and hold the race because they were asked to hold the race so perhaps it wasn't entirely a surprise on that front. is it clear to you from your reporting and what you know that it was, in fact, entirely the mayor's decision? >> i think that based on all the people that i spoke to, close to it, i would say that's affirmative, yes. i mean, it clearly the logistical. they had trucks set up for the broadcast, all the supplies and talked about the generators there powering the setup. clearly they were all in to get it going and there will be a lot of problems to break it down and deal with this on the downside

but you could tell mary's heart was honestly not in it and that was obvious by her body language, whether it was on our air at cnbc and talked to her on the nbc sports network and on the "today" show. she was trying to push the talking points home but it wasn't her call. >> brian shactman, thanks for that update. brian shactman joining us. we understand there is going to be a press conference at any moment. we will bring that to you as soon as we get it. meantime, to our traders, two of you are native new yorkers and first time that i can remember so many were up in arms and against having the marathon, which has been a terrific event every single year in the fall, dan? >> yeah, you know, to me it was an impossible situation for the mayor and for all parties involved. here i am, i'm up in syracuse, new york, in my hometown displaced with my family. i didn't feel a lot of angst or rage or anything about this the decision to go on with it.

you know, but a lot of people have been severely inconvenienced and, you know, i feel like it's been really not a problem for me. i had a place to go, we got out and that sort of thing. a lot lost their homes and lost a whole heck of a lot and lost their lives so to me it just didn't feel like an appropriate time to do it. not for people like me who had a place to go. but really for a lot of people who are hurting right now. so, you know, at the end of the day it is a great event for new york city. hopefully they'll get it back up and quickly and they'll be able to have that uplifting experience that mayor bloomberg hoped to have in the first place. >> yeah, and, you know, you go to central park now. they were setting up for the new york city marathon which, again, in case you're just tuning in

has been canceled at this point and see the generators that were going to be allocated to use for the race and you got to wonder, mike khouw, what all those people without power think about these generators being used for the marathon when there's so many people living in homes that are close to freezing temperatures at this point. >> i think that's right. it wasn't just the generators, anybody who has stood along first avenue, for example, as i often did when i lived on the upper east side and watched the marathon, there's a lot of resources dedicated to it. there's bottled water. there are police officers, there's sanitation workers. there are volunteers. there is a great deal that goes into it in terms of resources and it just optically doesn't look good when resources are needed elsewhere. i think the mayor is making the right choice. >> especially with the police. the police have been working day and night and every single day since wednesday when the new york stock exchange re-opened. i traveled down in pitch blackness and at every corner practically there were police stationed to make sure there's no looting and stationed in the subways as they get running. was this also the talk? what are the optics from chicago?

>> i understand why mayor bloomberg wanted to have the marathon. he wanted to have something that people could look to with pride. but let's face it, new york has bounced back from worst blows than canceling or delaying the marathon and they'll bounce back from this one. >> all right. we do have breaking news and want to go to eamon javers in d.c. concerning heating oil. >> hi, melissa. on the gasoline front the federal government is stepping into action release here from the department of energy, we're just getting this, the energy department has been instructed by the president to loan the department of defense ultra low sulfur diesel from the northeast home heating reserve. means the agency will draw down stocks from the healing oil reserve terminal in grotten, connecticut, as early as tomorrow. the word is that initially the dla will draw down 2 million gallons of fuel for the reserve and most will be directed to first responders in the new york area and new jersey who were responding to the damage from hurricane sandy. obviously this will give those first responders a boost and the ability to continue on with

those activities without the fear of running out of fuel, melissa. >> yeah, eamon, thanks for that update. mike khouw, the issue here also in terms of the refineries is distillates were at multiyear lows in terms of inventory going in so wasn't a lot of pad going into the hurricane with these disruptions now in production. >> that's right. you have these disruptions like the phillips 66 refinery in linden, new jersey, shut down. that does 238,000 barrels a day of throughput. quite a lot. these setbacks adding to the problem, frankly. >> all right. got to take a break here. coming up next, the final call from the options pits. and you don't want to miss it with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, plus anytime you need it support.

♪ stocks, options, futures, and forex. get your trading on track. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account.

time for the final call, mike. >> december risk reversals in disney. >> dan? >> facebook call spreads. >> scott? >> buy protection for your high flyers coming back to earth. >> our time has expired. i'm melissa lee. much more coverage of the new york city marathon being canceled here up "money in motion" right up after the break.

and you don't want to miss it with thinkorswim by td ameritrade. you get knock-your-socks-off tools, simple one-click orders, real-time paper trading to hone your skills, plus anytime you need it support. ♪ stocks, options, futures, and forex. get your trading on track. thinkorswim by td ameritrade. trade commission free for 60 days, plus get up to $600 when you open an account.